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Fiscal policies, public deficit retraints and European stabilization

Listed author(s):
  • Frédérique BEC

    (Université de Lille II and M.A.D, Université de Paris I)

  • Jean-Olivier Hairault

    (Université de Lille I (CEPE) and M.A.D., Université de Paris I)

The ability of fiscal policies to smooth macroeconomic fluctuations under the constraints imposed by the Maastricht Treaty is at the heart of the current policy debate in Europe. A two-country intertemporal stochastic general equilibrium model is used in order to evaluate the efficiency of fiscal policy. First, it reveals the importance of the nature of the shocks hitting European countries: asymmetrical shocks actually strengthen the national fluctuations. Then, constraints on public deficit imposed by the Maastricht Treaty limit the ability of national governements to stabilize their economies. Furthermore, they can lead the European countries to adopt pro-cyclical budget rules.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 1996035.

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Length: 27
Date of creation: 01 Sep 1996
Handle: RePEc:ctl:louvre:1996035
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